Memec: Carving a niche

Hard hit by the downturn, Memec Group maintains its focus and plans for the future

By Heidi Elliott -- Movers & Shakers, 8/15/2002

It’s been a challenging time for Memec Group, but CEO David Ashworth has stayed the course, and his company is surviving the downturn.

“We were transitioning from a VEBA subsidiary to a private company and establishing ourselves as an independent company— all at a time of hardship.” David Ashworth, CEO, Memec Group

The distribution company, which specializes in semiconductors, had a significant focus on the telecommunications market, which meant it was hit really hard by the downturn. At the same time, the newly minted company was still adjusting to its independent status.

“We were transitioning from a VEBA subsidiary to a private company, and establishing ourselves as an independent company—all at a time of hardship,” Ashworth says. “Weeks after conclusion of the deal in October [2000] the economy fell on its ass.”

Ashworth became CEO of Memec in January 1999, when the company was still part of VEBA AG. He took over the reins from Memec founder Dick Skipworth. Memec is the parent company of San Diego-based distribution companies Insight Electronics, Impact Technologies, and Unique Technologies, as well as Memec United in Thames, England.

Founded in 1974, Memec went public in 1981 with annual sales of about $12 million. Ashworth joined the company in 1982 in sales. He went on to run the company’s Asia/Pacific region. Germany’s VEBA AG bought the company in 1991 when its sales were about $160 million, and it became part of that conglomerate’s balance sheet.

On October 16, 2000, Memec officially became an independent entity following its sale. German giant VEBA AG had announced more than a year earlier that it was selling off divisions including its component distribution group. In June 2000, it was revealed that the VEBA-owned distribution companies would be split up among a consortium of three. Giants Arrow Electronics and Avnet each absorbed pieces of the company, and venture firm Schroder Ventures got Memec.

In the last year the company saw its revenue shrink from an estimated $3.4 billion in 2000 to $2.2 billion in 2001. The company has slipped from its position as the third-largest distribution company to fifth place. Ashworth says the toughest part of the downturn has been having to eliminate jobs. “I feel quite miserable about what happened in the last year,” he says.

“Memec has never had a down year in its 27-year history,” the CEO notes. “We’ve never let anyone go” to layoffs. “We recognized these things very early and took very aggressive action in Q1 of last year. I just wish we’d built a bit more strength in the business so that the layoffs could have been avoided. It feels almost criminal.”

Despite the market conditions, Ashworth cites as his biggest accomplishment the success of his management team during this difficult time. The team stayed true to the company’s specialty distribution model, with its focus on getting in at the design-in phase of the product-development cycle. “They came of age during a really tough year,” Ashworth says.

As a company, Memec has certainly earned high marks from the analyst community. “I like the Memec model,” says Robert Damron, analyst with SWS Securities. “They’ve been hard-hit because of the focus on the telecommunications and networking markets, but I think there is room in this industry for a focused distributor with a few product lines—being the best distributor of those lines and knowing the most about them. There’s a higher level of demand creation services for those suppliers, and there is room for specialty niche distributors.”

“[We] took very aggressive action in Q1 of last year. I just wish we’d built a bit more strength in the business so that the layoffs could have been avoided.” David Ashworth, CEO, Memec Group

And, that place could be in the company of the world’s two top distributors, Arrow and Avnet, which right now are the only large-scale global players in the industry and are several billion dollars bigger than the next level of competitors like Memec, Pioneer-Standard Electronics, and Future Electronics. “If I had to bet on somebody becoming the third member of a triumvirate, I’d bet on Memec,” says analyst Clarke Walser of Walser & Associates.

Ashworth certainly has the ambition to reach that goal. And he has a plan too. Specifically, it’s called the “7-7-7 Plan.” What it means is that by 2007 he wants Memec to be a $7 billion company with 7 percent earnings before interest, tax, and depreciation. All of which he plans to do by sticking to the original Memec business model—a small line card of specialty product lines with a strong focus on design wins in the semiconductor market space. Don’t expect to see the company starting to offer capacitors or resistors. “It’s an audacious goal, but it’s not unreachable,” Ashworth says. “If we even get close that, it would be good.”